Borrowing Base

A calculated ceiling on the amount a sponsor or fund manager may draw under a structured legal-asset credit facility at any given time, determined by applying a discount or advance rate to the value of eligible assets currently pledged as collateral, with the calculation refreshed periodically as the underlying case portfolio changes through new additions, resolutions, or valuation adjustments. Borrowing base certificates, typically delivered monthly or quarterly, itemize the eligible collateral and the resulting available borrowing capacity, and a facility's governing documents specify precisely which assets qualify as eligible — often excluding cases below a certain stage of development, cases involving a single overrepresented defendant, or cases past a certain duration without resolution. If the outstanding facility balance exceeds the recalculated borrowing base at any measurement date, the sponsor is typically required to either pledge additional eligible collateral or repay the facility down to the permitted level.

The borrowing base mechanism gives a lender continuous, formula-driven visibility into collateral coverage without needing to renegotiate the facility every time the underlying portfolio composition shifts, which is why lenders in this asset class insist on frequent recalculation given how quickly case-level valuations can move on a single ruling or settlement development. Sponsors manage their portfolio composition partly around maintaining borrowing base headroom, since a facility that suddenly falls out of compliance because ineligible or stale cases were not proactively removed can force an unplanned paydown at an inconvenient time.